Michael Dell is all smiles as Dell Technologies takes on the public stock markettheCUBE.net
Never bet against Michael Dell. After many months of preparation and a public faceoff with activist investors, Dell Technologies Inc. today officially debuted on the New York Stock Exchange.
The technology giant’s stock opened at $46 per share under the ticker symbol DELL, giving it a market capitalization of $34 billion, according to our sources which peg the number of common shares at 754 million. However, it wasn’t immediately clear what shares account for the large number beyond the 206.5 fully diluted shares of Class C stock that Dell cited.
The new enterprise model is scale
He took his company private and then returned to the public markets this week. Dell built up an arsenal of value from integrating EMC and VMware that created a new model. The new enterprise business model is the scale at a global level from sales, manufacturing, technology differentiation, and product breadth to become a fully scalable organization that might propel them to being the best one-stop IT provider in the industry. Older companies are a contrast to this new model such as HPE. They are having a hard time modernizing around cloud technology and scale as evidenced by their results compared to Michael Dell.
Then there is Amazon Web Services (AWS) who lead the market in scale. AWS and it’s CEO Andy Jassy see cloud computing pushing all kinds of new cloud services and capabilities to datacenters, the edge, and to new industries and workloads for tomorrow. The best enterprise companies are positioning themselves for these new sets of workloads that enterprises want.
“There are net new workloads that enterprise customers are excited about and that has the broadest, most capable offering, such as machine learning and AI, analytics, Edge, serverless, and IoT. Enterprises are figuring out their migration over several years and there’s this real, palpable excitement about these new workloads as net new opportunities they can get started on now.” This is not only the competitive pressure for Dell Technologies but its’ opportunity.
The market is changing from PC to cloud
We are living in a world of cloud computing and role of data powering new software and infrastructure changes. This is powering the trend of digital transformation enabling changes in the workforce, Information Technology (IT), security, and AI that is powered by the surge in data growth. This data growth is accelerating the momentum in machine learning that is generated by millions of devices connected to the Internet knows as the Internet of Things (IoT).
Dell is outpacing the competitors like HPE and recapturing losses from the EMC and VMware acquisition. Dell built up an arsenal of value from integrating EMC and VMware that created a new model. This new model is the scale at a global level from sales, manufacturing, technology differentiation, and product breadth to become a fully scalable organization that might propel them to being the best one-stop IT provider in the industry.
In the ever-changing PC market, Dell has gained share in classic infrastructure, which includes x86 servers, storage, server virtualization, and hyperconverged which combines servers, storage, and networking capability. With the VMware asset, Dell has a great position in not only traditional IT, but new markets. VMware revenue is growing to over $2b with growth in their core software-defined datacenter, network virtualization, vSAN software , and Workspace ONE, with some seeing over 50% year over year.
VMware’s new offerings around cloud-native with the acquisition of Heptio, a Kubernetes company, and CloudHealth position Dell as the enterprise company to handle mmulti-cloudenterprise operations. Other groups like Pivotal, Boomi, and Secureworks all round out a product portfolio that gives Dell both product breadth and technology differentiation at scale.
Competing at scale is the new competitive advantage
With a sales force of over 40,000 and channel partners pushing 150,000 in over 170 countries, Dell is operating at revenue scale that is hard for the competition to match. That is why analyst estimates that revenue will keep pushing great than $80 billion. Because the IT industry is a very mature business, many see the pricing pressures to be a big threat to Dell’s margins. VMware and the digital transformation could be the pivot Dell is banking on. That won’t be without competition from China, legacy hardware vendors, and new software-based solutions with cloud computing reshape IT infrastructure market.
“I don’t foresee a major change in Dell’s behavior,” David Vellante, chief analyst at Wikibon, commented earlier this month. “Rather, I see this as a way to simplify the corporate structure and eliminate the fuzziness of a tracking stock.”
Today, Vellante added that as a public company with majority ownership of VMware, Dell will be under constant pressure from investors that want it to spin out the virtualization company as a completely independent firm. “I don’t see that happening,” Vellante added. “Rather, I see Dell weathering the investor criticism and pressure on valuation by leveraging the VMWare asset to drive business results”.
Is Dell Technologies Undervalued?
At the moment the public stock shows that Michael Dell is back on the public 90-day shot clock and back with vigor. We’ll see if the debt he took on to reset the company will lead them to the promised land in the quest for total IT dominance.
Some might ask why is Dell so undervalued?
The skeptics have been playing debt card going back to Dell’s historic merger with EMC. “I’ve heard people say time and time again that Dell will have trouble paying down the debt, but Michael seems to pull a rabbit out of the hat every time”, says Vellante. According to Vellante, the obvious angles on valuation are 1/ they have a boatload of debt; 2/ they will have to prioritize paying down debt over innovation until they can get a better credit rating 3/ Michael Dell and Silverlake have control of the voting shares and the street might be a bit worried of that dynamic; and 4/ it’s a low margin business that is highly susceptible to swings in the economy.
The upshot to all of this is Dell’s ownership of VMware.
If VMware is worth $65b and Dell owns 80% of VMware then that’s $52b in value right there. So at the moment, the Dell Technologies valuation looks good at $33b.
Check out my interviews with Michael Dell over the years if you’re interested in following his journey on our digital TV program www.theCUBE.net
I’m the founder of SiliconANGLE Media Inc., an independent Silicon Valley media company covering the intersection of Computer Science and Social Science. It’s also the home of SiliconANGLE.com, TheCUBE.net LIVE video broadcasting at top tech events. We love the enterprise …
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John Furrier, Cofounder of SiliconANGLE Media from Palo Alto the heart of Silicon Valley covering the enterprise & emerging technology. Follow me on Twitter @furrier SiliconANGLE.com theCUBE.net